Prosperity Bancshares, Inc.(R) Reports Strong 2009 Earnings

- 4Q 2009 Earnings Per Share of $0.65 (diluted)

- Non-Performing Assets equal 0.22% of 4Q Average Earning Assets

- Total Risk Based Capital is 13.86%

- Tier 1 Leverage Capital is 6.47%

Jan 22, 2010, 06:00 ET from Prosperity Bancshares, Inc.

HOUSTON, Jan. 22 /PRNewswire-FirstCall/ -- Prosperity Bancshares, Inc.® (Nasdaq: PRSP), the parent company of Prosperity Bank®, reported net income for the quarter ended December 31, 2009 of $30.569 million or $0.65 per diluted common share, an increase in net income of $7.884 million or 34.8%, compared with $22.685 million or $0.49 per diluted common share for the same period in 2008.  Prosperity also reported net income for the year ended December 31, 2009 of $111.879 million or $2.41 per diluted common share, up 32.4% from 2008 net income of $84.507 million and up 29.6% from 2008 diluted earnings per common share of $1.86.

Excluding impairment charges on Prosperity's Fannie Mae and Freddie Mac perpetual preferred securities of $14.025 million pre-tax during the third quarter of 2008, net income for the year ended December 31, 2008 would have been $93.623 million or $2.06 per diluted common share.

Prosperity was included in the January 18, 2010 issue of Forbes magazine in their list of "Good Banks/Bad Banks" as the 4th best bank in the nation.  The report considered eight measures of asset quality, capital adequacy and profitability.  In addition, Prosperity was recently recognized by Morningstar for its strong performance in their article entitled "Our Favorite Texas Banking Franchises."

"We continue to be pleased with our performance during these challenging economic conditions," said David Zalman, Prosperity's Chairman and Chief Executive Officer.  "Our bankers remain focused on growing our bank one customer at a time in a prudent fashion."

In addition to Prosperity's GAAP (generally accepted accounting principles) financial reporting, Prosperity's management includes certain non−GAAP financial measures to evaluate its performance. Specifically, Prosperity reviews return on average tangible common equity, tangible book value per share and the tangible equity to tangible assets ratio. Prosperity also reviews its non-interest expense, net income, earnings per share and related performance ratios for the twelve month period ending December 31, 2008 excluding the non-recurring impairment charge on Fannie Mae and Freddie Mac perpetual preferred securities.  Prosperity has included in this Earnings Release information relating to these non-GAAP financial measures for the applicable periods presented.  Please refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of these non-GAAP financial measures.

Results of operations for the three months ended December 31, 2009

For the three months ended December 31, 2009, net income was $30.569 million compared with $22.685 million for the same period in 2008.  Net income per diluted common share was $0.65 for the three months ended December 31, 2009 and $0.49 for the same period in 2008. Returns on average assets, average common equity and average tangible common equity for the three months ended December 31, 2009 were 1.39%, 9.11% and 28.50%, respectively.  Prosperity's efficiency ratio (excluding net gains and losses on the sale of securities and assets and impairment charge on write-down of securities) was 42.44% for the three months ended December 31, 2009.

Net interest income before provision for credit losses for the quarter ended December 31, 2009 increased 25.2% to $80.089 million compared with $63.957 million during the same period in 2008. The increase was attributable primarily to lower deposit pricing.  The net interest margin on a tax equivalent basis increased to 4.24% for the three months ended December 31, 2009 compared with 3.65% for the same period in 2008, primarily impacted by the Franklin Bank transaction in 2008.

Non-interest income increased $1.203 million or 8.9% to $14.711 million for the three months ended December 31, 2009 compared with $13.508 million for the same period in 2008.  The increase was mainly attributable to a decrease in losses on the sale of ORE.

Non-interest expense increased $2.590 million or 6.9% to $40.176 million for the fourth quarter of 2009 compared with $37.586 million for the fourth quarter of 2008.  The increase was mainly attributable to increased FDIC assessments.

Loans at December 31, 2009 were $3.377 billion, a decrease of $190.354 million or 5.3%, compared with $3.567 billion at December 31, 2008.  Construction loans decreased $108.835 million over the past year.  Loans decreased 0.9% or $29.434 million on a linked quarter basis compared with loans of $3.406 billion at September 30, 2009.  As reflected in the table below, linked quarter loans for the fourth quarter of 2009 were impacted by a decrease in the loans acquired from the FDIC as a part of the Franklin Bank transaction.

Deposits at December 31, 2009 were $7.259 billion, a decrease of $44.747 million or 0.6%, compared with $7.303 billion at December 31, 2008.  Excluding the deposits assumed as a part of the Franklin Bank transaction, deposits increased 11.0% or $582.739 million over the past year.  Linked quarter deposits increased $140.557 million or 2.0% from $7.118 billion at September 30, 2009.  As reflected in the table below, linked quarter deposits for the fourth quarter of 2009 were impacted by the deposits assumed from the FDIC as part of the Franklin Bank transaction.



Balance Sheet Data (at period end)

Dec 31, 2009

Sept 30, 2009

Dec 31, 2008

(In Thousands)

(Unaudited)

(Unaudited)

(Unaudited)





Loans:




Acquired from FDIC (related to Franklin Bank)

$        259,162

$        264,319

$        356,420

All other

      3,117,541

      3,141,818

      3,210,637

Total Loans

$     3,376,703

$     3,406,137

$     3,567,057









Deposits:




Assumed from FDIC (related to Franklin Bank)

$     1,366,931

$     1,533,641

$     1,994,417

All other

      5,891,619

      5,584,352

      5,308,880

Total Deposits

$     7,258,550

$     7,117,993

$     7,303,297







Average loans increased 0.7% or $23.977 million to $3.390 billion for the quarter ended December 31, 2009 compared with $3.366 billion for the same period of 2008.  Linked quarter average loans decreased 1.2% or $41.532 million from $3.431 billion at September 30, 2009. Average deposits increased 6.0% to $7.089 billion for the quarter ended December 31, 2009 compared with $6.686 billion for the same period of 2008.  Linked quarter average deposits decreased 1.9% or $135.270 million from $7.224 billion at September 30, 2009.

At December 31, 2009, construction loans totaled $557.245 million, consisting of approximately $147 million of single family residential construction loans; $89 million of land development loans; $79 million of raw land loans; $101 million of residential lot loans; $52 million of commercial lot loans; and $90 million of commercial construction and other construction loans.  This is a decrease of $6.861 million from construction loans at September 30, 2009.

At December 31, 2009, Prosperity had $8.850 billion in total assets, $3.377 billion in loans and $7.259 billion in deposits. Assets, loans and deposits at December 31, 2009 decreased by 2.4%, 5.3% and 0.6%, respectively, compared with their level at December 31, 2008.

Results of operations excluding impairment charges on Fannie Mae and Freddie Mac perpetual preferred securities

Prosperity incurred a non-cash impairment charge on its Fannie Mae and Freddie Mac perpetual preferred securities in the amount of $14.025 million pre-tax ($9.116 million after-tax) in the third quarter of 2008 equal to the full carrying cost of its investment in such securities.  The table below presents select financial results before and after the impairment write-down for the related periods.


12 Months Ended

As reported    

As reported    (with charge)

Without charge


Dec 31, 2009

Dec 31, 2008

Dec 31, 2008


(Unaudited)

(Unaudited)

(Unaudited)





Non-interest income (in thousands)

$           60,097

$          52,370

$          52,370

Non-interest expense (in thousands)

           169,700

         143,796

        129,771

Income before taxes (in thousands)

           168,723

        126,436

         140,461

Federal income taxes (in thousands)

             56,844

          41,929

           46,838

Net income (in thousands)

             111,879

          84,507

           93,623

Return on average assets

1.26%

1.20%

1.33%

Return on average common equity

8.57%

7.09%

7.85%

Return on average tangible common

    Equity

28.66%

24.16%

26.77%

Earnings per share (basic)

$               2.42

$              1.87

$              2.07

Earnings per share (diluted)

$               2.41

$              1.86

$              2.06

Shareholders' equity (in thousands)

$      1,351,245

$     1,255,106

$     1,255,106



Results of operations for the twelve months ended December 31, 2009

For the twelve months ended December 31, 2009, net income was $111.879 million compared with $84.507 million for the same period in 2008.  Net income per diluted common share was $2.41 for the twelve months ended December 31, 2009 compared with $1.86 for the same period in 2008. Excluding impairment charges on Prosperity's Fannie Mae and Freddie Mac perpetual preferred securities of $14.025 million pre-tax during the third quarter of 2008, net income for the year ended December 31, 2008 would have been $93.623 million or $2.06 per diluted common share.

Returns on average assets, average common equity and average tangible common equity for the twelve months ended December 31, 2009 were 1.26%, 8.57% and 28.66%, respectively.  Prosperity's efficiency ratio (excluding net gains and losses on the sale of securities and assets) was 46.27% for the twelve months ended December 31, 2009.

Net interest income before provision for credit losses for the twelve months ended December 31, 2009 increased $79.372 million or 34.9%, to $307.101 million compared with $227.729 million during the same period in 2008. The increase was attributable primarily to a 30.26% increase in average earning assets and lower deposit pricing.

Non-interest income increased $7.727 million or 14.8% to $60.097 million for the twelve months ended December 31, 2009 compared with $52.370 million for the same period in 2008.  The increase was mainly attributable to a decrease in net loss on sale of ORE and increases in service charges on deposit accounts due to an increased number of deposit accounts assumed from the FDIC as a part of the Franklin Bank transaction and deposit accounts assumed from the Banco Popular and 1st Choice acquisitions.  

Non-interest expense increased $25.904 million or 18.0% to $169.700 million for the twelve months ended December 31, 2009 compared with $143.796 million for the same period in 2008.  The increase was due primarily to (i) an increase in salaries and benefits expense due to associates added in connection with the Franklin Bank transaction and the acquisition of Banco Popular and 1st Choice; (ii) an increase in FDIC assessments and (iii) an increase in general operating costs associated with the banking centers acquired in 2008 and the banking offices that were previously locations of Franklin Bank.  Total non-interest expense for the twelve months ended December 31, 2008 included a $14.025 million impairment charge on write-down of securities.

Asset Quality

Non-performing assets totaled $16.356 million or 0.22% of average earning assets at December 31, 2009 compared with $14.368 million or 0.20% of average earning assets at December 31, 2008 and $21.920 million or 0.29% of average earnings assets at September 30, 2009.  Non-performing assets at December 31, 2009 consist of $6.1 million in non-accrual loans, $2.3 million in accruing loans 90 or more days past due, approximately $116,000 in repossessed assets and $7.8 million in ORE.  The allowance for credit losses was 1.54% of total loans at December 31, 2009, 1.04% at December 31, 2008 and 1.39% of total loans at September 30, 2009.


Non-performing assets

(In thousands)

Dec 31, 2009

Sept 30, 2009

Dec 31, 2008


Amount

#

Amount

#

Amount

#

Commercial

$     1,390

19

$    920

26

$   1,491

16

Construction

5,622

43

10,975

40

9,252

36

1-4 family (including home equity)

2,383

26

1,285

16

1,325

19

Commercial real estate (including multi-family)

6,834

14

8,592

13

2,014

8

Agriculture

0

0

0

0

30

3

Consumer

127

11

148

13

250

15

Other

0

0

0

0

6

1

Total

$ 16,356

113

$ 21,920

108

$ 14,368

98



Net Charge-offs

(In thousands)

Three Months Ended

Dec 31, 2009

Three Months Ended

Sept 30, 2009

Three Months Ended

Dec 31, 2008

Commercial

$           1,762

$           712

$         1,552

Construction

          1,009

          780

          742

1-4 family (including home equity)

           446

           297

           100

Commercial real estate  (including multi-family)

                312

                215

                43

Agriculture

               10

               53

               203

Consumer

            410

            492

            371

Total

$         3,949

$         2,549

$         3,011



The provision for credit losses was $8.500 million for the three months ended December 31, 2009 and $6.000 million for the three months ended December 31, 2008.  Prosperity's loan loss reserve model called for increased provisioning in the fourth quarter due to increased charge-offs resulting from a continued weak economy.  Net charge offs were $3.949 million for the three months ended December 31, 2009 and $3.011 million for the three months ended December 31, 2008.

The provision for credit losses was $28.775 million for the twelve months ended December 31, 2009, an increase of $18.908 million compared with $9.867 million for the twelve months ended December 31, 2008.  As mentioned earlier, Prosperity's loan loss reserve model called for increased provisioning in 2009 due to increased charge-offs resulting from a continued weak economy.  Net charge offs were $13.881 million for the twelve months ended December 31, 2009 and $7.621 million for the twelve months ended December 31, 2008.

Conference Call

Prosperity's management team will host a conference call on Friday, January 22, 2010 at 10:30 a.m. Eastern Standard Time (9:30 a.m. Central Standard Time) to discuss Prosperity's fourth quarter and full year 2009  earnings. Individuals and investment professionals may participate in the call by dialing 1-800-894-5910, the reference code is PBTX.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity's website at www.prosperitybanktx.com.  The webcast may be accessed directly from Prosperity's Investor Relations page by clicking on the "4th Quarter Results and Webcast" link.

Acquisition of U. S. Bank's Texas Branches

On January 19, 2010, Prosperity announced the signing of a definitive agreement to acquire the three (3) Texas retail bank branches of U.S. Bank (USB). Prosperity Bank will pay a premium for approximately $420 million in deposits, as well as purchase certain loans and other assets attributable to the branches.  

The three locations being acquired by Prosperity are the Texas locations U.S. Bank acquired from the FDIC on October 30, 2009 when U.S. Bank acquired the nine (9) subsidiary banks of FBOP Corporation.  The Texas banks were Madisonville State Bank in Madisonville, Texas; Citizens National Bank in Teague, Texas; and North Houston Bank in Houston, Texas. 

The agreement has been approved by both banks and is expected to close during the first quarter of 2010, although delays could occur. The transaction is subject to certain conditions, including customary regulatory approvals.

Assumption of deposits and acquisition of certain assets from the FDIC as receiver for Franklin Bank, SSB

On November 7, 2008, Prosperity Bank® assumed approximately $3.6 billion of deposits, including all uninsured deposits, from the FDIC, acting in its capacity as receiver for Franklin Bank.  The FDIC entered into a purchase and assumption agreement with Prosperity Bank, which paid a premium to ensure that all deposits of Franklin Bank, both insured and uninsured, were transferred to Prosperity Bank.  Under terms of the purchase and assumption agreement, Prosperity acquired certain assets from the FDIC, including approximately $350 million in US Treasury and Agency Securities and approximately $350 million in performing loans.  The remaining net proceeds were predominately invested in US Agency Securities.

While Franklin Bank operated forty-five (45) full service banking offices, Prosperity is operating thirty-three (33) of the locations as full-service banking centers following the completion of the operational integration which occurred during the first quarter of 2009.  The former Franklin Bank locations not operated by Prosperity were closed and consolidated into nearby Prosperity Bank locations.

Acquisition of 1st Choice Bancorp, Inc.

On June 1, 2008, Prosperity completed its previously announced acquisition of 1st Choice Bancorp, Inc. and its wholly owned subsidiary, 1st Choice Bank. 1st Choice Bancorp, Inc. operated two (2) banking offices in Houston, Texas, with one location in South Houston and another in the Heights area, which was consolidated with Prosperity's Heights location and is located in 1st Choice's Heights banking office.  As of May 31, 2008, 1st Choice Bancorp reported total assets of approximately $314.9 million, loans of approximately $192.7 million, deposits of approximately $285.2 million and stockholders' equity of approximately $26.4 million.

In connection with the acquisition, Prosperity issued 1,757,757 shares of its common stock and paid approximately $18.758 million in cash for all outstanding shares of 1st Choice Bancorp.

Acquisition of Banco Popular's Houston Branches

On January 10, 2008, Prosperity Bank® completed its previously announced acquisition of six (6) Houston retail bank branches from Banco Popular North America.  The branches had approximately $125 million in combined deposits. All six (6) locations are now operating as full service banking centers of Prosperity Bank®.

Prosperity Bancshares, Inc.®

Prosperity Bancshares, Inc.®, an $8.9 billion Houston, Texas based regional financial holding company, formed in 1983, operates under a community banking philosophy and seeks to develop broad customer relationships based on service and convenience. Prosperity offers a variety of traditional loan and deposit products to its customers, which consist primarily of small and medium sized businesses and consumers. In addition to established banking products, Prosperity offers a complete line of services including: Internet Banking services at http://www.prosperitybanktx.com, Retail Brokerage Services, MasterMoney Debit Cards, and 24 hour voice response banking. Prosperity currently operates one hundred fifty-eight (158) full service banking locations; fifty-one (51) in the Houston area; twenty-seven (27) in the South Texas area including Corpus Christi and Victoria; twenty-four (24) in the Dallas/Fort Worth area; twenty (20) in the East Texas area; and twenty-seven (27) in the Central Texas area including Austin and San Antonio; and nine (9) in the Bryan/College Station area.

Central Texas Area -

Austin -

Allandale

Cedar Park

Congress

183

Lakeway

Liberty Hill

Northland

Oak Hill

Parmer Lane

Research Blvd

Rollingwood

Slaughter Lane

Bryan/College Station -

Bryan

Bryan-East

Bryan-North

College Station

Greens Prairie

Wellborn Road

Rock Prairie

Other Central Texas Locations -

Bastrop

Caldwell

Dime Box

Dripping Springs

Elgin

Flatonia

Georgetown

Kingsland

La Grange

Lexington

Navasota

New Braunfels

Round Rock

San Antonio

Schulenburg

Smithville

Weimar

Dallas/Fort Worth Area -

Dallas -

Abrams Centre

Balch Springs

Camp Wisdom

Cedar Hill

Central Expressway

Frisco

Frisco-West

Kiest

Preston Road

Red Oak

The Colony

Turtle Creek

Westmoreland

Fort Worth -

Haltom City

Keller

Roanoke

Stockyards

Other Dallas/Fort Worth Locations -

Azle

Ennis

Gainesville

Mesquite

Muenster

Sanger

Waxahachie

East Texas Area -

Athens

Athens-South

Blooming Grove

Canton

Carthage

Corsicana

Crockett

Eustace

Grapeland

Gun Barrel City

Jacksonville

Kerens

Longview

Mount Vernon

Palestine

Rusk

Seven Points

Tyler

Tyler-University

Winnsboro

Houston Area -

Houston -

Aldine

Bellaire

Clear Lake

Copperfield

Cypress

Downtown

Fairfield

Gessner

Gladebrook

Harrisburg

Heights

Highway 6 West

Hillcroft

Little York

Medical Center

Memorial Drive

Pasadena

Pecan Grove

River Oaks

Sugar Land

SW Medical Center

Tanglewood

Uptown

Waugh Drive

Westheimer

Woodcreek

Other Houston Area

Locations -

Angleton

Bay City

Beaumont

Cinco Ranch

Cleveland

East Bernard

El Campo

Dayton

Galveston

Groves

Hempstead

Hitchcock

Katy

Liberty

Magnolia

Mont Belvieu

Nederland

Needville

Sweeny

Tomball

Waller

West Columbia

Wharton

Winnie

Wirt

South Texas Area -

Corpus Christi -

Airline

Carmel  

Northwest  

Saratoga

Water Street

Other South Texas

Locations -

Alice

Aransas Pass

Beeville

Cuero

Edna

Goliad

Gonzales

Hallettsville

Kingsville

Mathis

Palacios

Pleasanton

Port Aransas

Port Lavaca

Portland

Rockport

Seguin

Sinton

Victoria

Victoria-North

Yoakum

Yorktown

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and the remarks by Prosperity's management on the conference call may contain, forward-looking statements within the meaning of the securities laws that are based on current expectations, assumptions, estimates and projections about Prosperity Bancshares®, and its subsidiaries.  These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Prosperity's control, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements.  These risks and uncertainties include but are not limited to whether Prosperity can: successfully identify acquisition targets and integrate the businesses of acquired companies and banks;  continue to sustain its current internal growth rate or total growth rate; provide products and services that appeal to its customers; continue to have access to debt and equity capital markets; and achieve its sales objectives.  Other risks include, but are not limited to: the possibility that credit quality could deteriorate; actions of competitors; changes in laws and regulations (including changes in governmental interpretations of regulations and changes in accounting standards); a deterioration or downgrade in the credit quality and credit agency ratings of the securities in Prosperity's securities portfolio; customer and consumer demand, including customer and consumer response to marketing; effectiveness of spending, investments or programs; fluctuations in the cost and availability of supply chain resources; economic conditions, including currency rate fluctuations and interest rate fluctuations; weather; and the stock price volatility associated with "small-cap" companies.  These and various other factors are discussed in Prosperity's Annual Report on Form 10-K for the year ended December 31, 2008 and other reports and statements we have filed with the SEC. Copies of the SEC filings for Prosperity Bancshares's®  may be downloaded from the Internet at no charge from www.prosperitybanktx.com.




Prosperity Bancshares, Inc. ®

Financial Highlights

(Dollars and share amounts in thousands, except per share data)



Three Months Ended

Twelve Months Ended


Dec 31, 2009

Dec 31, 2008

Dec 31, 2009

Dec 31, 2008

Selected Earnings and Per

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Share Data










Total interest income

$         99,585

$         96,588

$        409,614

$        347,878

Total interest expense

          19,496

          32,631

         102,513

         120,149

Net interest income

          80,089

          63,957

         307,101

         227,729

Provision for credit losses

            8,500

            6,000

             28,775

             9,867

Net interest income after





    provision for credit losses

          71,589

          57,957

         278,326

         217,862






Total non-interest income

          14,711

          13,508

           60,097

           52,370

Total non-interest expense(A)

          40,176

          37,586

         169,700

         143,796

Net income before taxes

          46,124

          33,879

         168,723

         126,436

Federal income taxes

          15,555

          11,194

           56,844

           41,929






Net income(B)

$         30,569

$         22,685

$         111,879

$          84,507






Basic earnings per share(C)

$0.66

$0.49

$2.42

$1.87






Diluted earnings per share(C)

$0.65

$0.49

$2.41

$1.86






Period end shares outstanding

46,541

46,080

46,541

46,080

Weighted average shares





    outstanding (basic)

46,524

46,078

46,177

45,300

Weighted average shares





    outstanding (diluted)

46,800

46,276

46,354

45,479


(A) Total non-interest expense for the twelve  months ended December 31, 2008 includes a $14.025 million pre-tax impairment charge on securities.


(B) Earnings for the twelve months ended December 31, 2008 include a $14.025 million pre-tax, or $9.116 million after-tax, impairment charge on securities.


(C) Earnings for the twelve months ended December 31, 2008 include a $14.025 million pre-tax, or $9.116 million after-tax, impairment charge on securities which resulted in a $0.20 decrease in both basic and diluted earnings per share to $1.87 and $1.86, respectively, for the twelve months ended December 31, 2008.



Prosperity Bancshares, Inc. ®

Financial Highlights

(Dollars in thousands)



Three Months Ended

Twelve Months Ended


Dec 31, 2009

Dec 31, 2008

Dec 31, 2009

Dec 31, 2008

Balance Sheet Averages

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)






Total loans

$      3,389,529

$      3,365,552

$      3,455,761

$      3,250,447

Investment securities

4,152,752

3,229,874

4,052,989

2,409,758

Federal funds sold and





    other temporary investments

          13,607

          451,524

           77,328

           163,746

Total earning assets

        7,555,888

        7,046,950

        7,586,078

        5,823,951

Allowance for credit losses

           (48,894)

           (33,494)

           (42,279)

           (33,004)

Cash and due from banks

           131,189

           183,507

           137,040

           146,647

Goodwill

           876,979

           835,328

           875,841

           798,289

Core Deposit Intangibles (CDI)

             36,543

             42,657

             38,543

             44,291

Other real estate

               12,308

               6,431

               11,710

               8,343

Fixed assets, net

           149,649

           124,210

           143,562

           124,114

Other assets

          105,351

          138,298

          101,199

          112,787

Total assets

$      8,819,013

$      8,343,887

$      8,851,694

$      7,025,418











Non-interest bearing deposits

$      1,481,514

$      1,425,440

$      1,488,699

$      1,271,408

Interest bearing deposits

       5,607,074

       5,260,084

       5,723,316

       4,200,033

Total deposits

7,088,588

6,685,524

7,212,015

5,471,441

Securities sold under





    repurchase agreements

             88,094

             92,941

             93,625

             84,289

Federal funds purchased and





    other borrowings

141,073

178,369

75,747

124,619

Junior subordinated





    debentures

92,265

92,265

92,265

99,998

Other liabilities

66,410

52,297

73,293

52,778

Shareholders' equity(D)

       1,342,583

       1,242,491

       1,304,749

       1,192,293

Total liabilities and equity

$      8,819,013

$      8,343,887

$      8,851,694

$      7,025,418


(D)  Includes $18,216 and ($1,675), in after-tax unrealized gains (losses) on available for sale securities for the three month periods ending December 31, 2009 and December 31, 2008, respectively,  and $14,889 and ($1,251) for the twelve month periods ending December 31, 2009 and December 31, 2008, respectively.



Prosperity Bancshares, Inc. ®

Financial Highlights

(Dollars in thousands)



Three Months Ended

Twelve Months Ended


Dec 31, 2009

Dec 31, 2008

Dec 31, 2009

Dec 31, 2008

Income Statement Data

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)






Interest on loans

$            53,461

$            56,073

$           219,320

$          227,466

Interest on securities

              46,116

              39,713

         190,106

         118,185

Interest on federal funds sold and





    other temporary investments

                         8

                  802

                188

                2,227

Total interest income

             99,585

             96,588

            409,614

            347,878

Interest expense - deposits

              18,062

              29,663

         95,834

         107,692

Interest expense - debentures

                803

                1,452

             3,760

             6,439

Interest expense - other

                      631

               1,516

               2,919

               6,018

Total interest expense

             19,496

             32,631

           102,513

           120,149

Net interest income(E)

              80,089

              63,957

         307,101

         227,729

Provision for credit losses

               8,500

               6,000

               28,775

               9,867

Net interest income after





    provision for credit losses

             71,589

             57,957

           278,326

           217,862

Service charges on





    deposit accounts

              12,953

              13,204

           51,742

           45,785

Net gain on sale of assets

                   145

                   130

                422

                845

Net (loss) gain on sale of ORE

              (135)

              (1,684)

            417

            (2,332)

Brokered mortgage income

                     36

                     34

                305

                330

Net gain on sale of held for





    sale loans

0

0

                0

                229

Other non-interest income

               1,712

               1,824

               7,211

               7,513

Total non-interest income

             14,711

             13,508

             60,097

             52,370






Salaries and benefits(F)

              19,747

              20,411

           84,396

           70,818

CDI amortization

                2,441

                2,284

            10,076

             9,797

Net occupancy and equipment

                3,794

                3,704

           14,910

           12,469

Depreciation

                2,056

                1,854

             8,226

             7,666

Data processing





and software amortization

                1,386

                1,609

             6,449

             5,580

Impairment charge on





   write-down  of securities

0

0

           0

           14,025

Other non-interest expense

               10,752

               7,724

             45,643

             23,441

Total non-interest expense

             40,176

             37,586

           169,700

           143,796

Net income before taxes

              46,124

              33,879

         168,723

         126,436

Federal income taxes

             15,555

             11,194

             56,844

             41,929

Net income available





to common shareholders(G)

$           30,569

$            22,685

$            111,879

$            84,507


(E) Net interest income on a tax equivalent basis would be $80,770 and $64,597 for the three months ended December 31, 2009 and December 31, 2008, respectively, and $309,866 and $230,592 for the twelve months ended December 31, 2009 and December 31, 2008, respectively.


(F) Salaries and benefits includes equity compensation expenses of $628 and $432 for the three months ended December 31, 2009 and December 31, 2008, respectively, and $1,515 and $1,543 for the twelve months ended December 31, 2009 and December 31, 2008, respectively.

(G) Earnings for the twelve months ended December 31, 2008 include a $14.025 million pre-tax, or $9.116 million after-tax, impairment charge on securities.



Prosperity Bancshares, Inc.®

Financial Highlights

(Dollars and share amounts in thousands, except per share data)




As of and for the

As of and for the


Three Months Ended

Twelve Months Ended


Dec 31, 2009

Dec 31, 2008

Dec 31, 2009

Dec 31, 2008

Common Share and

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

    Other Data





Employees - FTE

1,594

1,734

1,594

1,734






Book value per share

$          29.03

$          27.24

$          29.03

$          27.24

Tangible book value per share

$            9.43

$            7.43

$            9.43

$            7.43











Period end shares outstanding

          46,541

          46,080

46,541

46,080

Weighted average shares





    outstanding (basic)

          46,524

          46,078

           46,177

           45,300

Weighted average shares





    outstanding (diluted)

          46,800

          46,276

           46,354

           45,479






Non-accrual loans

$          6,079

$          2,142

$           6,079

$           2,142

Accruing loans 90 or more





    days past due

            2,332

            7,594

             2,332

             7,594

Restructured loans

                 0

                 0

                   0

                   0

Total non-performing loans

            8,411

            9,736

             8,411

             9,736

Repossessed assets

               116

               182

                116

                182

Other real estate

           7,829

           4,450

            7,829

            4,450

 Total non-performing assets

$        16,356

$        14,368

$         16,356

$         14,368






Allowance for credit losses at





    end of period

$        51,863

$        36,970

$         51,863

$         36,970






Net charge-offs

$          3,949

$          3,011

$        13,881

$           7,621






Basic earnings per share(H)

$            0.66

$            0.49

$             2.42

$             1.87






Diluted earnings per share(H)

$            0.65

$            0.49

$             2.41

$             1.86







(H) Earnings for the twelve months ended December 31, 2008 include a $14.025 million pre-tax, or $9.116 million after-tax, impairment charge on securities which resulted in a $0.20 decrease in both basic and diluted earnings per share to $1.87 and $1.86, respectively, for the twelve months ended December 31, 2008.






Prosperity Bancshares, Inc.®

Financial Highlights



Three Months Ended

Twelve Months Ended


Dec 31, 2009

Dec 31, 2008

Dec 31, 2009

Dec 31, 2008

Performance Ratios

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)






Return on average





    assets (annualized)(I)  

1.39%

1.09%

1.26%

1.20%

Return on average common





    equity (annualized)(I)    

9.11%

7.30%

8.57%

7.09%

Return on average tangible





    common equity (annualized)(I)  

28.50%

24.89%

28.66%

24.16%

Net interest margin(J)





    (tax equivalent) (annualized)

4.24%

3.65%

4.08%

3.96%






Efficiency ratio(K)

42.44%

48.60%

46.27%

46.51%






Asset Quality Ratios










Non-performing assets to





    average earning assets

0.22%

0.20%

0.22%

0.25%

Non-performing assets to loans





    and other real estate

0.48%

0.40%

0.48%

0.40%

Net charge-offs





    to average loans

0.12%

0.09%

0.40%

0.23%

Allowance for credit losses to





    total loans

1.54%

1.04%

1.54%

1.04%






Common Stock Market Price










High

$41.18

$36.98

$41.18

$46.48






Low

$33.62

$25.08

$20.04

$21.96






Period end market price

$40.47

$29.59

$40.47

$29.59


(I) Earnings for the twelve months ended December 31, 2008 include a $14.025 million pre-tax, or $9.116 million after-tax, impairment charge on securities which resulted in a 13 basis point decrease in return on average assets to 1.20%, a 76 basis point decrease in return on average equity to 7.09% and a 261 basis point decrease in return on average tangible common equity to 24.16%.


(J) Net interest margin for all periods presented is calculated on an actual 365 or actual 366 day basis.


(K) Prosperity's efficiency ratio is calculated by dividing total non-interest expense (excluding credit loss provisions) by net interest income plus non-interest income (excluding net gains and losses on the sale of securities and assets and impairment charge on write-down of securities).  Additionally, taxes are not part of this calculation.





Prosperity Bancshares, Inc.®

Financial Highlights

(Dollars in thousands)



Dec 31, 2009

Sept 30, 2009

June 30, 2009

Mar 31, 2009


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Loan Portfolio


















Commercial

$    415,512

12.31%

$    439,848

12.92%

$    461,622

13.38%

$    461,514

13.18%

Construction

      557,245

16.51%

     564,106

16.56%

     613,386

17.77%

      643,151

18.37%

1-4 family residential

      709,101

21.00%

     692,885

20.34%

    675,702

19.58%

      667,392

19.06%

Home equity

      117,661

3.48%

     116,873

3.43%

     115,029

3.33%

       112,053

3.20%

Commercial real estate

   1,339,219

39.66%

  1,336,454

39.24%

 1,318,489

38.20%

   1,346,056

38.45%

Agriculture

      135,529

4.01%

     145,176

4.26%

    149,515

4.33%

      144,384

4.12%

Consumer

     102,436

3.03%

     110,795

3.25%

     117,576

3.41%

     126,750

3.62%

Total Loans

$ 3,376,703


$ 3,406,137


$ 3,451,319


$ 3,501,300











Deposit Types


















Non-interest bearing DDA

$ 1,492,612

20.56%

$ 1,473,189

20.70%

$ 1,476,378

20.34%

$ 1,510,005

20.95%

Interest bearing DDA

   1,391,133

19.17%

  1,066,778

14.99%

  1,060,965

14.62%

    1,030,826

14.30%

Money Market

   1,619,970

22.32%

  1,682,345

23.63%

  1,614,874

22.25%

   1,495,724

20.76%

Savings

      322,399

4.44%

     320,078

4.50%

     325,232

4.48%

      322,130

4.47%

Time < $100

   1,208,658

16.65%

  1,289,362

18.11%

  1,418,375

19.54%

   1,491,380

20.69%

Time > $100

  1,223,778

16.86%

  1,286,241

18.07%

  1,362,071

18.77%

  1,356,814

18.83%

Total Deposits

$ 7,258,550


$ 7,117,993


$ 7,257,895


$ 7,206,879




















Loan to Deposit Ratio

46.5%


47.9%


47.6%


48.6%











Construction Loans


















Single family residential      

    construction

$     146,554

26.30%

$    152,056

26.96%

$    177,632

28.96%

$    214,034

33.28%

Land development

89,128

15.99%

76,996

13.65%

86,363

14.08%

       91,005

14.15%

Raw land

79,055

14.19%

84,384

14.96%

96,157

15.67%

89,003

13.84%

Residential lots

101,090

18.14%

103,565

18.36%

101,321

16.52%

104,684

16.28%

Commercial lots

51,639

9.27%

48,139

8.53%

49,614

8.09%

37,318

5.80%

Other

      89,779

16.11%

       98,966

17.54%

     102,299

16.68%

       107,107

16.65%

Total Construction Loans

$     557,245


$    564,106


$    613,386


$    643,151





Prosperity Bancshares, Inc.®

Financial Highlights

(Dollars in thousands)



Dec 31, 2009

Sept 30, 2009

June 30, 2009

Mar 31, 2009

Dec 31, 2008

Balance Sheet Data

(at period end)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)







Total loans

$    3,376,703

$    3,406,137

$    3,451,319

$  3,501,300

$    3,567,057

Investment securities(L)

     4,118,290

    4,255,057

     3,981,109

    3,991,200

     4,160,401

Federal funds sold and other






    temporary investments

         21,554

         35,930

         128,451

         14,930

        16,404

Total earning assets

     7,516,547

    7,697,124

     7,560,879

    7,507,430

     7,743,862

Allowance for credit losses

       (51,863)

        (47,312)

        (42,611)

        (39,238)

        (36,970)

Cash and due from banks

        173,763

       120,932

        142,860

       148,938

        212,335

Goodwill

        876,987

       876,958

        875,434

       874,356

        874,654

Core deposit intangibles

          35,385

         37,825

          40,305

         42,796

          38,196

Other real estate

            7,829

          12,738

           11,101

         9,134

          4,450

Fixed assets, net

        148,855

       149,725

        149,742

       151,544

        123,638

Other assets

        142,897

        109,342

        101,241

        104,237

        112,199

Total assets

$    8,850,400

$    8,957,332

$    8,838,951

$    8,799,197

$    9,072,364







Demand deposits

$    1,492,612

$    1,473,189

$    1,476,378

$    1,510,005

$    1,522,983

Interest bearing deposits

     5,765,938

     5,644,804

     5,781,517

     5,696,874

     5,780,314

Total deposits

     7,258,550

    7,117,993

     7,257,895

    7,206,879

     7,303,297

Securities sold under






    repurchase agreements

          72,596

       100,636

          96,732

         81,773

          96,017

Federal funds purchased and






    other borrowings

        26,140

       253,855

          28,170

       28,441

        229,395

Junior subordinated debentures

          92,265

         92,265

          92,265

       92,265

          92,265

Other liabilities

          49,604

          65,548

          64,794

         109,291

          96,284

Total liabilities

     7,499,155

    7,630,297

     7,539,856

    7,518,649

     7,817,258

Shareholders' equity(M)

     1,351,245

     1,327,035

     1,299,095

     1,280,548

     1,255,106

Total liabilities and equity

$    8,850,400

$    8,957,332

$    8,838,951

$    8,799,197

$    9,072,364








(L) Includes $25,855, $26,688, $20,153, $23,784 and $15,158 in unrealized gains on available for sale securities for the quarterly periods ending  December 31, 2009, September 30, 2009, June 30, 2009, March 31, 2009 and December 31, 2008,  respectively.

(M) Includes $16,806, $17,347, $13,099, $15,460 and $9,853 in after-tax unrealized gains on available for sale securities for the quarterly periods ending December 31, 2009, September 30, 2009, June 30, 2009, March 31, 2009 and December 31, 2008, respectively.




Prosperity Bancshares, Inc.®

Financial Highlights

(Dollars in thousands)



Three Months Ended


Dec 31, 2009

Sept 30, 2009

June 30, 2009

Mar 31, 2009

Dec 31, 2008

Income Statement Data

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)







Interest on loans

$        53,461 

$        54,809 

$          55,248 

$      55,802 

$        56,073 

Interest on securities

46,116 

46,812 

47,450 

49,726 

39,713 

Interest on federal funds






 sold and other earning assets

74 

70 

38 

802 

   Total interest income

99,585 

101,695 

102,768 

105,566 

96,588 

Interest expense- deposits

18,062 

22,694 

25,621 

29,457 

29,663 

Interest expense- debentures

803 

879 

959 

1,119 

1,452 

Interest expense- other

631 

709 

667 

912 

1,516 

   Total interest expense

19,496 

24,282 

27,247 

31,488 

32,631 

   Net interest income

80,089 

77,413 

75,521 

74,078 

63,957 

Provision for credit losses

8,500 

7,250 

6,900 

6,125 

6,000 

   Net interest income after






     provision for credit losses

71,589 

70,163 

68,621 

67,953 

57,957 

Service charges on






       deposits accounts

12,953 

13,554 

12,863 

12,372 

13,204 

Net gain (loss) on sale of  

    assets

145 

(20)

200 

97 

130 

Net (loss) gain on sale of ORE

(135)

115 

415 

22 

(1,684)

Brokered mortgage income

36 

59 

140 

70 

34 

Other non-interest income

1,712 

1,528 

1,515 

2,456 

1,824 

   Total non-interest income

14,711 

15,236 

15,133 

15,017 

13,508 

Salaries and benefits

19,747 

21,507 

20,494 

22,648 

20,411 

CDI amortization

2,441 

2,479 

2,492 

2,664 

2,284 

Net occupancy and equipment

3,794 

3,624 

3,514 

3,978 

3,704 

Depreciation

2,056 

2,100 

2,069 

2,001 

1,854 

Data processing






    and software amortization

1,386 

1,446 

1,562 

2,055 

1,609 

Other non-interest expense

10,752 

10,045 

14,169 

10,677 

7,724 

   Total non-interest expense

40,176 

41,201 

44,300 

44,023 

37,586 

   Net income before taxes

46,124 

44,198 

39,454 

38,947 

33,879 

Federal income taxes

15,555 

14,876 

12,944 

13,469 

11,194 

   Net income available






      to common shareholders

$        30,569 

$         29,322 

$         26,510 

$         25,478 

$        22,685 




Prosperity Bancshares, Inc.®

Financial Highlights



Three Months Ended


Dec 31, 2009

Sept 30, 2009

June 30, 2009

Mar 31, 2009

Dec 31, 2008

Comparative Quarterly

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Asset Quality, Performance






    & Capital Ratios












Return on average






    assets (annualized)

     1.39%

     1.32%

    1.20%

    1.15%

     1.09%

Return on average common






    equity (annualized)

     9.11%

     8.93%

    8.18%

    8.02%

     7.30%

Return on average tangible






    equity (annualized)

   28.50%

    29.34%

   27.98%

   28.52%

   24.89%

Net interest margin






    (tax equivalent) (annualized)

    4.24%

     4.08%

    4.04%

    3.98%

    3.65%







Employees – FTE

    1,594

     1,608

     1,634

     1,684

    1,734







Efficiency ratio

  42.44%

    44.46%

   48.98%

   49.47%

  48.60%

Non-performing assets to






    average earning assets

   0.22%

     0.29%

    0.26%

    0.16%

   0.20%

Non-performing assets to loans






    and other real estate

   0.48%

     0.64%

    0.57%

    0.36%

   0.40%

Net charge-offs to






    average loans

   0.12%

     0.07%

    0.10%

    0.11%

   0.09%

Allowance for credit losses to






    total loans

   1.54%

     1.39%

    1.23%

    1.12%

   1.04%







Book value per share

  $29.03

    $28.75

   $28.17

   $27.78

  $27.24







Tangible book value per share

    $9.43

      $8.93

     $8.31

     $7.88

    $7.43







Tier 1 risk-based capital

  12.61%

    11.85%

   11.24%

   10.53%

  10.27%







Total risk-based capital

  13.86%

    13.01%

   12.28%

   11.48%

  11.17%







Tier 1 leverage capital

   6.47%

     6.09%

    5.81%

    5.48%

   5.68%







Tangible equity to tangible assets

   5.53%

     5.13%

    4.84%

    4.61%

   4.19%







Equity to assets

 15.27%

    14.82%

   14.70%

   14.55%

 13.83%










Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)



Three Months Ended December 31, 2009

YIELD ANALYSIS

Average

Interest Earned

Average


Balance

/ Interest Paid

Yield/Rate





Interest Earning Assets:




Loans

$    3,389,529

$           53,461

6.26%

Investment securities

      4,152,752

             46,116

4.44%

Federal funds sold




    and other temporary investments

           13,607

                      8

0.23%

 Total interest earning assets

      7,555,888

$           99,585

5.23%

Allowance for credit losses

          (48,894)



Non-interest earning assets

     1,312,019



 Total assets

$    8,819,013







Interest Bearing Liabilities:




Interest bearing demand deposits

$           1,119,119

$             2,030

0.72%

Savings and money market deposits

      1,988,158

               4,150

0.83%

Certificates and other time deposits

      2,499,797

             11,882

1.89%

Securities sold under repurchase agreements

           88,094

                  218

0.98%

Federal funds purchased and other borrowings

         141,073

                  413

1.16%

Junior subordinated debentures

          92,265

                   803

3.45%

 Total interest bearing liabilities

      5,928,506

$           19,496

1.30%

Non-interest bearing liabilities:




Non-interest bearing demand deposits

      1,481,514



Other liabilities

          66,410



 Total liabilities

      7,476,430



Shareholders' equity

     1,342,583



 Total liabilities and shareholders' equity

$    8,819,013







Net Interest Income & Margin


$           80,089

4.21%





Net Interest Income & Margin




    (tax equivalent)


$           80,770

4.24%








Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)



Three Months Ended December 31, 2008

YIELD ANALYSIS

Average

Interest Earned

Average


Balance

/ Interest Paid

Yield/Rate





Interest Earning Assets:




Loans

$        3,365,552

$            56,073

6.63%

Investment securities

3,229,874

39,713

4.92%

Federal funds sold




    and other temporary investments

            451,524

                   802

  0.71%

 Total interest earning assets

7,046,950

$            96,588

5.45%

Allowance for credit losses

(33,494)



Non-interest earning assets

         1,330,431



 Total assets

$        8,343,887







Interest Bearing Liabilities:




Interest bearing demand deposits

$           839,152

$              1,629

0.77%

Savings and money market deposits

1,578,817

6,895

1.74%

Certificates and other time deposits

2,842,115

21,139

2.96%

Securities sold under repurchase agreements

92,941

579

2.48%

Federal funds purchased and other borrowings

        178,369

            937

2.09%

Junior subordinated debentures

            92,265

               1,452

6.26%

 Total interest bearing liabilities

5,623,659

$            32,631

  2.31%

Non-interest bearing liabilities:




Non-interest bearing demand deposits

1,425,440



Other liabilities

              52,297



 Total liabilities

7,101,396



Shareholders' equity

         1,242,491



 Total liabilities and shareholders' equity

$        8,343,887







Net Interest Income & Margin


$            63,957

3.61%





Net Interest Income & Margin




    (tax equivalent)


$            64,597

3.65%








Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)



Twelve Months Ended December 31, 2009

YIELD ANALYSIS

Average

Interest Earned

Average


Balance

/ Interest Paid

Yield/Rate





Interest Earning Assets:




Loans

$       3,455,761

$          219,320

6.35%

Investment securities

4,052,989

           190,106

4.69%

Federal funds sold




    and other temporary investments

             77,328

                  188

0.24%

 Total interest earning assets

7,586,078

$          409,614

5.40%

Allowance for credit losses

          (42,279)



Non-interest earning assets

        1,307,895



 Total assets

$       8,851,694







Interest Bearing Liabilities:




Interest bearing demand deposits

$       1,082,332  

$              8,587

0.79%

Savings and money market deposits

      1,910,721

             19,405

1.02%

Certificates and other time deposits

      2,730,263

             67,842

2.48%

Securities sold under repurchase agreements

           93,625

               1,166

1.25%

Federal funds purchased and other borrowings

         75,747

               1,753

2.31%

Junior subordinated debentures

             92,265

              3,760

4.08%

 Total interest bearing liabilities

      5,984,953

$          102,513

1.71%

Non-interest bearing liabilities:




Non-interest bearing demand deposits

      1,488,699



Other liabilities

             73,293



 Total liabilities

      7,546,945



Shareholders' equity

        1,304,749



 Total liabilities and shareholders' equity

$       8,851,694







Net Interest Income & Margin


$          307,101

4.05%





Net Interest Income & Margin




    (tax equivalent)


$          309,866

4.08%








Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)



Twelve Months Ended December 31, 2008

YIELD ANALYSIS

Average

Interest Earned

Average


Balance

/ Interest Paid

Yield/Rate





Interest Earning Assets:




Loans

$       3,250,447

$          227,466

7.00%

Investment securities

2,409,758

           118,185

4.90%

Federal funds sold




    and other temporary investments

           163,746

               2,227

1.36%

 Total interest earning assets

5,823,951

$          347,878

5.97%

Allowance for credit losses

          (33,004)



Non-interest earning assets

        1,234,471



 Total assets

$       7,025,418







Interest Bearing Liabilities:




Interest bearing demand deposits

$          791,739

$              7,967

1.01%

Savings and money market deposits

      1,411,142

             27,770

1.97%

Certificates and other time deposits

      1,997,152

             71,955

3.60%

Securities sold under repurchase agreements

           84,289

               2,388

2.83%

Federal funds purchased and other borrowings

         124,619

               3,630

2.91%

Junior subordinated debentures

             99,998

               6,439

6.44%

 Total interest bearing liabilities

      4,508,939

$          120,149

2.66%

Non-interest bearing liabilities:




Non-interest bearing demand deposits

      1,271,408



Other liabilities

             52,778



 Total liabilities

      5,833,125



Shareholders' equity

        1,192,293



 Total liabilities and shareholders' equity

$       7,025,418







Net Interest Income & Margin


$          227,729

3.91%





Net Interest Income & Margin




    (tax equivalent)


$          230,592

3.96%








Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars in thousands)


Consolidated Financial Highlights


NOTES TO SELECTED FINANCIAL DATA


Prosperity's management uses certain non−GAAP (generally accepted accounting principles) financial measures to evaluate its performance. Specifically, Prosperity reviews tangible book value per share, return on average tangible common equity and the tangible equity to tangible assets ratio for internal planning and forecasting purposes. Prosperity also reviews its net income, earnings per share, non-interest expense and related performance ratios for the twelve month period ended December 31, 2008 excluding the non-recurring impairment charge on Fannie Mae and Freddie Mac perpetual preferred securities. Prosperity has included in this Earnings Release information relating to these non-GAAP financial measures for the applicable periods presented.  Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity's financial results and Prosperity believes that its presentation, together with the accompanying reconciliations, provides a better understanding of factors and trends affecting Prosperity's business and allows investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. Further, Prosperity believes that these non-GAAP measures provide useful information by excluding certain items that may not be indicative of its core operating earnings and business outlook.  These non-GAAP measures should not be considered a substitute for GAAP basis measures and results and Prosperity strongly encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.



Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars and share amounts in thousands)



Three months ended


Dec 31, 2009

Sept 30, 2009

June 30, 2009

Mar 31, 2009

Dec 31, 2008

Return on average tangible common equity:




Net income

$30,569

$29,322

$26,510

$25,478

$22,685

Average shareholders' equity

1,342,583

1,314,011

1,295,737

1,270,380

1,242,491

Less: Average goodwill and other intangible assets

(913,522)

(914,203)

(916,754)

(913,010)

(877,985)

      Average tangible shareholders' equity

$429,061

$399,808

$378,983

$357,370

$364,506

Return on average tangible common  equity:

28.50%

29.34%

27.98%

28.52%

24.89%







Tangible book value per share:






Shareholders' equity

$1,351,245

$1,327,035

$1,299,095

$1,280,548

$1,255,106

Less: Goodwill and other intangible assets

(912,372)

(914,783)

(915,739)

(917,152)

(912,850)

        Tangible shareholders' equity

$438,873

$412,252

$383,356

$363,396

$42,256







Period end shares outstanding

46,541

46,153

46,109

46,100

46,080

Tangible book value per share:

$9.43

$8.93

$8.31

$7.88

$7.43







Tangible equity to tangible assets ratio:






        Tangible shareholders' equity

$438,873

$412,252

$383,356

$363,396

$342,256







Total assets

$8,850,400

$8,957,332

$8,838,951

$8,799,197

$9,072,364

Less: Goodwill and other intangible assets

(912,372)

(914,783)

(915,739)

(917,152)

(912,850)

      Tangible assets

$7,938,028

$8,042,549

$7,923,212

$7,882,045

$8,159,514







Tangible equity to tangible assets ratio:

5.53%

5.13%

4.84%

4.61%

4.19%




Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars and share amounts in thousands)



Twelve Months Ended


Dec 31, 2009

Dec 31, 2008

Return on average tangible common equity:



Net income

$               111,879   

$                    84,507   

Average shareholders' equity

1,304,749   

1,192,293   

Less: Average goodwill and other intangible assets

(914,384)  

(842,580)  

        Average tangible shareholders' equity

$               390,365   

$                  349,713   

Return on average tangible common equity:

28.66%

24.16%




Tangible book value per share:



Shareholders equity

$            1,351,245   

$               1,255,106   

Less: Goodwill and other intangible assets

(912,372)  

(912,850)  

        Tangible shareholders' equity

$               438,873   

$                  342,256   




Period end shares outstanding

46,541   

46,080   

Tangible book value per share:

$                     9.43   

$                        7.43   




Tangible equity to tangible assets ratio:


        Tangible shareholders' equity

$               438,873   

$                  342,256   




Total assets

$            8,850,400   

$               9,072,364   

Less: Goodwill and other intangible assets

(912,372)  

(912,850)  

      Tangible assets

$            7,938,028   

$               8,159,514   




Tangible equity to tangible assets ratio:

5.53%

4.19%





Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars and share amounts in thousands)


Results of operations before impairment charge for the twelve months ended December 31, 2008


The following results illustrate the effect of the $14.025 million pre-tax ($9.116 million after-tax) impairment charge on Fannie Mae and Freddie Mac perpetu